Changes the govt has made to airport regulation raise troubling questions

In the name of reducing the burden on the airport regulator, has the government expanded its own role?

An unhealthy precedent appears to have been created by the Modi government in the way regulation of sectors is undertaken. If the sector has grown rapidly and several private players are entering it in partnership with public sector entities, then the scope and powers of the independent regulator can now be curtailed on the apparently specious ground that the burden on it must be reduced.
 
This is exactly what happened when the government got the Airports Economic Regulatory Authority of India Act, 2008 amended in Parliament last week. Two specific features of the earlier law have been modified through the 2019 amendment. One pertains to raising the threshold for defining major airports, which come under the purview of the Airports Economic Regulatory Authority (AERA). The second change exempts from AERA’s purview all airports, won by operators on the basis of tariff-based bidding or pre-determined tariffs.

 
India has 102 airports, of which 7 are joint-venture international airports (like those in Delhi and Mumbai), 20 are international airports, 60 are domestic airports, 8 are Customs airports and 7 are state government or private airports. Of these, only 33 airports came under the purview of AERA, since the annual passenger traffic they handled was more than 1.5 million.
 

But that was only till the amendment of the AERA Act last week. The amended law mandates that AERA would regulate only those airports, whose annual traffic is more than 3.5 million. Going by the traffic numbers in 2018-19, this would halve the number of airports to be regulated by AERA to just 16.

 
The government, of course, argued in Parliament that this did not reduce the scope of regulation. When the law was enacted in 2008, the criterion of 1.5 million to define a major airport was fixed keeping in mind that the threshold resulted in bringing under AERA regulation only about 1.3 per cent of total airport traffic at that time. The traffic has grown significantly since then and the new threshold of 3.5 million accounts for much more than 1.3 per cent of the total traffic at present. So, according to the government, there is no dilution in the scope of the regulator.

 
However, the problematic logic behind the decision becomes evident when one reads the Statement of Objects and Reasons, appended to the amendment Bill. It stated: “Exponential growth of the Sector has added tremendous pressure to the Authority on the one hand and various private operators are entering the Sector in the form of Public Private Partnership on the other hand, which requires regulatory certainty keeping in view long gestation of the Sector. To overcome this complexity, it is felt that if too many airports come under the purview of the Authority, it will be difficult on the part of the Authority to efficiently determine the tariffs and monitor the service standards of major airports with the limited resources available with the Authority.”

 
Similarly, all airports to be awarded on the basis of pre-determined tariffs or tariff-based bidding would no longer be regulated by AERA. Of course, AERA would be consulted in advance on such tariffs, but effectively the regulator would have no role in determining tariffs for such airports every five years or periodically, as it does for other airports. The government has argued that in such a tariff-based model, “the market itself determines the charges and the regulator is not required to fix charges after the award of the project”. This is disturbing as even though the market may fix the tariffs, tariffs needed to be monitored and regulated periodically by an independent regulator. And the proposed system seems to do away with such regulation during the period of the contract.

 
AERA should see the writing on the wall, as its role will get further reduced. The Statement of Objects and Reasons of the AERA amendment Bill makes it very clear while referring to the role of the tariff-based model for airport development: “Since this model is a means to reduce the airport charges, the airports in future may also be developed under this model.”
 
Many deeply troubling questions arise. If AERA was overburdened with the task of regulating 33 airports, why didn’t the government explore the easier options of strengthening the regulator? By shifting the regulation of 17 airports (Calicut, Srinagar, Coimbatore, Amritsar, Mangalore, Varanasi, Port Blair, Trichy, Nagpur, Kannur, Vizag, Bagdogra, Chandigarh, Madurai, Indore, Ranchi and Raipur) outside AERA’s purview, has the government expanded its own role? After all, the government controls the Airports Authority of India (AAI), a state-owned entity, which will now oversee these 17 airports as well. Will AAI have the capacity to carry the additional responsibility? Or were the changes in the law a sweet deal for the new private sector airport operators? And finally, will this regulatory principle used in the aviation sector be applied to other sectors as well?